Compensation Management

Human Resource is the most vital resource for any organization. It is responsible for each and every decision taken, each
and every work done and each and every result. Employees should be managed properly and motivated by providing best
remuneration and compensation as per the industry standards. The lucrative compensation will also serve the need for
attracting and retaining the best employees.

Compensation is the remuneration received by an employee in return for his/her contribution to the organization. It is an
organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits
to employees. Compensation is an integral part of human resource management which helps in motivating the employees
and improving organizational effectiveness.

Components of Compensation System

Compensation systems are designed keeping in minds the strategic goals and business objectives. Compensation system
is designed on the basis of certain factors after analyzing the job work and responsibilities. Components of a
compensation system are as follows:

Types of Compensation
Compensation provided to employees can direct in the form of monetary benefits and/or indirect in the form of non-
monetary benefits known as perks, time off, etc. Compensation does not include only salary but it is the sum total of all
rewards and allowances provided to the employees in return for their services. If the compensation offered is effectively
managed, it contributes to high organizational productivity.

Need of Compensation Management

1) A good compensation package is important to motivate the employees to increase the organizational productivity.
2) Unless compensation is provided no one will come and work for the organization. Thus, compensation helps in running
an organization effectively and accomplishing its goals.
3) Salary is just a part of the compensation system, the employees have other psychological and self-actualization needs
to fulfill. Thus, compensation serves the purpose.
4) The most competitive compensation will help the organization to attract and sustain the best talent. The compensation
package should be as per industry standards.

Strategic Compensation
Strategic compensation is determining and providing the compensation packages to the employees that are aligned with
the business goals and objectives. In today’s competitive scenario organizations have to take special measures regarding
compensation of the employees so that the organizations retain the valuable employees. The compensation systems have
changed from traditional ones to strategic compensation systems.

Evolution Of Compensation
Today’s compensation systems have come from a long way. With the changing organizational structures workers’ need
and compensation systems have also been changing. From the bureaucratic organizations to the participative
organizations, employees have started asking for their rights and appropriate compensations. The higher education
standards and higher skills required for the jobs have made the organizations provide competitive compensations to their
employees.
Compensation strategy is derived from the business strategy. The business goals and objectives are aligned with the HR
strategies. Then the compensation committee or the concerned authority formulates the compensation strategy. It
depends on both internal and external factors as well as the life cycle of an organization.

Traditional Compensation Systems

In the traditional organizational structures, employees were expected to work hard and obey the bosses’ orders. In return
they were provided with job security, salary increments and promotions annually. The salary was determined on the basis
of the job work and the years of experience the employee is holding. Some of the organizations provided for retirement
benefits such as, pension plans, for the employees. It was assumed that humans work for money, there was no space for
other psychological and social needs of workers.

Change in Compensation Systems

With the behavioral science theories and evolution of labour and trade unions, employees started asking for their rights.
Maslow brought in the need hierarchy for the rights of the employees. He stated that employees do not work only for
money but there are other needs too which they want to satisfy from there job, i.e. social needs, psychological needs,
safety needs, self-actualization, etc. Now the employees were being treated as human resource.

Their performance was being measured and appraised based on the organizational and individual performance.
Competition among employees existed. Employees were expected to work hard to have the job security. The
compensation system was designed on the basis of job work and related proficiency of the employee.

Today’s Modern Compensation Systems

Today the compensation systems are designed aligned to the business goals and strategies. The employees are expected
to work and take their own decisions. Authority is being delegated. Employees feel secured and valued in the
organization. Organizations offer monetary and non-monetary benefits to attract and retain the best talents in the
competitive environment. Some of the benefits are special allowances like mobile, company’s vehicle; House rent
allowances; statutory leaves, etc.

IMPORTANCE OF COMPENSATION
Compensation and Reward system plays vital role in a business organization. Since, among four Ms, i.e. Men, Material,
Machine and Money, Men has been most important factor, it is impossible to imagine a business process without Men.
Every factor contributes to the process of production/business. It expects return from the business process such as rent
is the return expected by the landlord, capitalist expects interest and organizer i.e. entrepreneur expects profits. Similarly
the labour expects wages from the process.
Labour plays vital role in bringing about the process of production/business in motion. The other factors being human,
has expectations, emotions, ambitions and egos.

Labour therefore expects to have fair share in the business/production process. Therefore a fair compensation system is a
must for every business organization. The fair compensation system will help in the following:

1 An ideal compensation system will have positive impact on the efficiency and results produced by employees. It will
encourage the employees to perform better and achieve the standards fixed.
2 It will enhance the process of job evaluation. It will also help in setting up an ideal job evaluation and the set standards
would be more realistic and achievable.
3 Such a system should be well defined and uniform. It will be apply to all the levels of the organization as a general
system.
4 The system should be simple and flexible so that every employee would be able to compute his own compensation
receivable.
5 I t should be easy to implement, should not result in exploitation of workers..
6 It will raise the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction
to the workers.
7 Such system would help management in complying with the various labor acts.
8 T he system should follow the management principle of equal pay.
9 It should motivate and encouragement those who perform better and should provide opportunities for those who wish
to excel.
10 Sound Compensation/Reward System brings peace in the relationship of employer and employees.
11 It aims at creating a healthy competition among them and encourages employees to work hard and efficiently.
12 The system provides growth and advancement opportunities to the deserving employees.
13 The perfect compensation system provides platform for happy and satisfied workforce. This minimizes the labour
turnover. The organization enjoys the stability.
14 The organization is able to retain the best talent by providing them adequate compensation thereby stopping them
from switching over to another job.
15 The business organization can think of expansion and growth if it has the support of skillful, talented and happy
workforce.
16 The sound compensation system is hallmark of organization’s success and prosperity. The success and stability of
organization is measured with pay-package it provides to its employees.

Components of Compensation
Job Analysis
Job analysis is a systematic approach to defining the job role, description, requirements, responsibilities, evaluation, etc.
It helps in finding out required level of education, skills, knowledge, training, etc for the job position. It also depicts the
job worth i.e. measurable effectiveness of the job and contribution of job to the organization. Thus, it effectively
contributes to setting up the compensation package for the job position.

Importance of Job Analysis

Job analysis helps in analyzing the resources and establishing the strategies to accomplish the business goals and
strategic objectives. It forms the basis for demand-supply analysis, recruitments, compensation management, and
training need assessment and performance appraisal.

Components of Job Analysis

Job analysis is a systematic procedure to analyze the requirements for the job role and job profile. Job analysis can be
further categorized into following sub components.

Job Position
Job position refers to the designation of the job and employee in the organization. Job position forms an important part of
the compensation strategy as it determines the level of the job in the organization. For example management level
employees receive greater pay scale than non-managerial employees. The non-monetary benefits offered to two different
levels in the organization also vary.

Job Description
Job description refers the requirements an organization looks for a particular job position. It states the key skill
requirements, the level of experience needed, level of education required, etc. It also describes the roles and
responsibilities attached with the job position. The roles and responsibilities are key determinant factor in estimating the
level of experience, education, skill, etc required for the job. It also helps in benchmarking the performance standards.

Job Worth
Job Worth refers to estimating the job worthiness i.e. how much the job contributes to the organization. It is also known
as job evaluation. Job description is used to analyze the job worthiness. It is also known as job evaluation. Roles and
responsibilities helps in determining the outcome from the job profile. Once it is determined that how much the job is
worth, it becomes easy to define the compensation strategy for the position.

Therefore, job analysis forms an integral part in the formulation of compensation strategy of an organization.
Organizations should conduct the job analysis in a systematic at regular intervals. Job analysis can be used for setting up
the compensation packages, for reviewing employees’ performance with the standard level of performance, determining
the training needs for employees who are lacking certain skills.
Pay-Structures
Once job analysis has been done organizations need to decide upon the pay structures. Pay structure refers to the
process of setting up the pay for a job in an organization. The process deals with internal and external analysis to
estimate the compensation package for a job profile. Internal equity, External equity and Individual equity are the most
popular pay structures. Job description provides the in depth knowledge about the job profile and its worth.

Pay structures are the strong determinant of employee’s value in the organization. It helps in analyzing the employee’s
role and status in the organization. It provides for fair treatment to all employees. Pay structures also include the
estimation of incentives.

The level of incentives also depends on the level of job position in the organizational hierarchy.
Internal Equity
The internal equity method undertakes the job position in the organizational hierarchy. The process aims at balancing the
compensation provided to a job profile in comparison to the compensation provided to its senior and junior level in the
hierarchy. The fairness is ensured using job ranking, job classification, level of management, level of status and factor
comparison.

External Equity

Here the market pricing analysis is done. Organizations formulate their compensation strategies by assessing the
competitors’ or industry standards. Organizations set the compensation packages of their employees aligned with the
prevailing compensation packages in the market. This entails for fair treatment to the employees. At times organizations
offer higher compensation packages to attract and retain the best talent in their organizations.
Salary-Surveys
Organizations have to bridge the gap between the industry standards and their salary packages. They cannot provide
compensation packages that are either less than the industry standards or are very higher then the market rates. For the
purpose they undertake the salary survey. The Salary survey is the research done to analyze the industry standards to
set up the compensation strategy for the organization. Organizations can either conduct the survey themselves or they
can purchase the survey reports from a reputed research organization. These reports constitute the last 2-5 years or
more compensation figures for the various positions held by the organizations. The analysis is done on the basis of
certain factors defined in the objectives of the research.

Objectives of Salary Survey

• To gather information regarding the industry standards

• To know more about the market rate i.e. compensation offered by the competitors
• To design a fair compensation system
• To design and implement most competitive reward strategies
• To benchmark the compensation strategies

Types of Compensation Surveys

There are two types of compensation surveys undertaken by the organizations.

Standard Surveys
Standard surveys are undertaken by organizations on a regular basis. These surveys are conducted annually based on
the organizational objectives. These surveys attempt to cover the same companies every year and provide the same time
of analysis. The reports are published annually by the research organizations. The organizations willing to formulate their
compensations strategies based on the surveys purchase the reports from the research organization.

Custom Surveys
At times, a few organizations need to know some specific information. The surveys which cater this need are known as
custom surveys. The organizations either higher research organizations to conduct theses surveys for them or they
themselves conduct the survey by sampling few of the competitors on their own. These surveys do not have any time
interval. They are undertaken as the need arises. They focus on important issues usually one or two.

Survey Reports
The survey reports consist of the analysis and conclusion drawn from the evaluative data based on the objectives of the
study. The reports also include the data, facts and figures to support the analysis and conclusion. The supportive data
and annexure provided in the report form the basis for the un-biased conclusion and validation of the analysis.

Types of Compensation
Direct Compensation
Direct compensation refers to monetary benefits offered and provided to employees in return of the services they provide
to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel
allowance, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a
definite time.

Basic Salary
Salary is the amount received by the employee in lieu of the work done by him/her for a certain period say a day, a
week, a month, etc. It is the money an employee receives from his/her employer by rendering his/her services.

House Rent Allowance

Organizations either provide accommodations to its employees who are from different state or country or they provide
house rent allowances to its employees. This is done to provide them social security and motivate them to work.

Conveyance
Organizations provide for cab facilities to their employees. Few organizations also provide vehicles and petrol allowances
to their employees to motivate them.
Leave Travel Allowance
These allowances are provided to retain the best talent in the organization. The employees are given allowances to visit
any place they wish with their families. The allowances are scaled as per the position of employee in the organization.

Medical Reimbursement
Organizations also look after the health conditions of their employees. The employees are provided with medi-claims for
them and their family members. These medi-claims include health-insurances and treatment bills reimbursements.

Bonus
Bonus is paid to the employees during festive seasons to motivate them and provide them the social security. The bonus
amount usually amounts to one month’s salary of the employee.

Special Allowance
Special allowance such as overtime, mobile allowances, meals, commissions, travel expenses, reduced interest loans;
insurance, club memberships, etc are provided to employees to provide them social security and motivate them which
improve the organizational productivity.

Indirect Compensation
Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided
by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave
travel Assistance Limits, Retirement Benefits, Holiday Homes.

Leave Policy
It is the right of employee to get adequate number of leave while working with the organization. The organizations
provide for paid leaves such as, casual leaves, medical leaves (sick leave), and maternity leaves, statutory pay, etc.

Overtime Policy
Employees should be provided with the adequate allowances and facilities during their overtime, if they happened to do
so, such as transport facilities, overtime pay, etc.

Hospitalization
The employees should be provided allowances to get their regular check-ups, say at an interval of one year. Even their
dependents should be eligible for the medi-claims that provide them emotional and social security.
Insurance
Organizations also provide for accidental insurance and life insurance for employees. This gives them the emotional
security and they feel themselves valued in the organization.

Leave Travel
The employees are provided with leaves and travel allowances to go for holiday with their families. Some organizations
arrange for a tour for the employees of the organization. This is usually done to make the employees stress free.

Retirement Benefits
Organizations provide for pension plans and other benefits for their employees which benefits them after they retire from
the organization at the prescribed age.

Holiday Homes
Organizations provide for holiday homes and guest house for their employees at different locations. These holiday homes
are usually located in hill station and other most wanted holiday spots. The organizations make sure that the employees
do not face any kind of difficulties during their stay in the guest house.

Flexible Timings
Organizations provide for flexible timings to the employees who cannot come to work during normal shifts due to their
personal problems and valid reasons.

Payroll Management
Payroll is defined as a method of administrating employees’ salaries in the organizations. The process consists of
calculation of salaries and tax deductions of the employees, administrating the retirement benefits and disbursements of
salaries to employees. It can also be called as an accounts activity which undertakes the salary administration of
employees in the organization.

Administrating the employees’ salaries is not an easy task, the HR and accounts department work together to calculate
and disburse the salary to the employees. Thus, payroll management can be further subdivided into two sub processes,
i.e. Payroll accounting and payroll administration.

Payroll Accounting
Payroll accounting involves calculations of employees’ salaries and tax deductions. It also undertakes the activities such
as preparation of tax returns, maintaining the payroll records, etc.

Payroll Administration
Payroll Administration involves managerial activities such as maintaining employees’ records, referring employment laws.
Here, the HR comes into picture which maintains the daily record if employees attendance.
Database of employees is maintained. Employee’s details such as name, employee ID, basic salary, daily attendance, etc
are recorded. Gross Salary is calculated after adding the allowances and incentives to the basic salary of the employee.
Net salary is calculated by deducting the tax and other calculated deductions (loan installments, etc).

Components Of Payroll
Payroll refers to the administration of employees' salaries, wages, bonuses, net pay, and deductions. It consist of the
employee ID, employee name, date of joining, daily attendance record, basic salary, allowances, overtime pay, bonus,
commissions, incentives, pay for holidays, vacations and sickness, value of meals and lodging etc. There are some
deductions such as PF, taxes, loan installments or advances taken by employee.

Payroll is administered on monthly basis and annual basis.

While administrating the monthly payroll basic salary, HRA, conveyance, and other special allowances such mobile, etc
are considered. There are some deductions which are provident fund (12%) of the salary, taxes and other deductions.
Deductions such as tax and loan/advances taken by the employee from organizations are deducted only where applicable.
Dearness Allowance and House rent allowance is provided at a fixed rate stated by the employment law. Provident fund is
deducted from the gross salary of employee on the monthly basis as per the employment law, which is provided later to
the employee. Organizations also contribute the same amount to the provident fund of the employee.

Annual payroll consists of leave travel allowances, incentives, annual bonuses, meal vouchers/reimbursements, and
medical reimbursements.

Allowances, incentives, bonuses and reimbursements are based on organizational policies. Some organizations provided
the allowances on a fixed rate say 10% or 12% of the basic salary. Some organizations go for performance based
incentives.
Payroll Management Processes
Calculation of gross salaries and deductible amounts is a tedious task which involves risk. Some of the organizations use
the traditional manual method of payroll processing and some go for the advanced payroll processing software. An
organization opts for any of the following payroll processing methods available:

Manual System
Manual payroll system is the traditional payroll system which involves pen and ink, adding machine, spreadsheet, etc
instead of computers, software and other computerized aids. The process was very popular when there were no
computerized means for payroll processing.

Now-a-days it is only few small scale organizations in the remote areas that use the manual payroll. Sometimes the
construction industry and manufacturing industry also use the manual payroll systems for the contractual labour, as
theses contracts are on daily/weekly basis.

There is full control in the hands of owner. But the process is tedious, time consuming and risky as it is more prone to
errors.

Accountant
Accountant is a professional having a degree/diploma course in finance/accountancy. He/she is responsible for all the
activities related to payroll accounting. He/she has the sound knowledge of accounting principles and globally accepted
standards.
The process adds costs to the organization. It involves paying someone who is responsible for calculating the salaries of
others. The financial control regarding salary goes in the hand of accountant.

Payroll Software
In today’s computerized environment, payroll system has also developed itself into automated software that performs
every action needed by the payroll process. It helps in calculating the payable amounts and deductions very easily. It
also helps in generating the pay slips in lesser time. Automated calculations result in no errors. Data is validated
automatically by the software.
It needs professionals to make use of the software for its efficient working.

Payroll Outsourcing
Payroll outsourcing involves a third party (an outsourcing company) in the calculations of salaries and deductions. The
outsourcing organization is responsible for all the activities of the payroll accounting. It saves time and cost for the
organization. If there is more number of employees (say more than 900-1000) in the organization, payroll outsourcing
would be very much beneficial.
The data is provided to the consultants/outsourcing firms. The various payroll functions undertaken by the outsourcing
organizations are as follows:

• Analysis of Payroll records, payroll taxes

• Medical claim processing
• Employee Insurance & Provident fund processing
• Quality Audit procedures & planning

Incentive Management
In today’s strategic compensation systems, incentives forms an integral part of the performance based compensation
packages. It is a challenge for organizations to formulate strategies to maintain the internal equity and external equity
and provide the most competitive compensation packages to attract and retain the talented workforce. For the purpose
effective incentives programs are undertaken. Employees are involved in the process so as to deliver un-biased packages
to all the employees.

The compensation strategies should be effective. All the employees should be aware of the organizational goals and
objectives. The methods used for evaluating employees’ performance should be fair enough and easy to understand.

The performance standards established should be achievable. Deserving employees should receive significant rewards.
There should be always scope for improvements. Employees’ performance should be evaluated on the basis of their
productivity.

Incentives accounts for employees’ high productivity. Today youngsters believe in performance based pay, thus
incentives will help to motivate them to produce more. In the hospitality and retail industry it is the incentive that
accounts for the overall package of the employee.

Employee Stock Ownership Plans (ESOP)

Employee Stock Ownership Plan (ESOP) is an employee benefit plan. The scheme provides employees the ownership of
stocks in the company. It is one of the profit sharing plans. Employers have the benefit to use the ESOPs as a tool to
fetch loans from a financial institute. It also provides for tax benefits to the employers.
Organizations strategically plan the ESOPs and make arrangements for the purpose. They make annual contributions in a
special trust set up for ESOPs. An employee is eligible for the ESOPs only after he/she has completed 1000 hours within a
year of service. After completing 10 years of service in an organization or reaching the age of 55, an employee should be
given the opportunity to diversify his/her share up to 25% of the total value of ESOPs. Law has also provided an
amendment for the employees who have attained the age of 60 and their ESOP shares are allotted after December 31,
1986. The amendment provides those employees with an option to diversify their shares up to 50%.

Individual employees’ accounts are credited with the stocks acquired by ESOP. They can also acquire stocks through
stock options. Stock options provide employees the right to buy shares at a definite price* for a defined number of years
in future.

Executive Incentives
Organizations offer heavy incentives to executives to retain the talented workforce. The immense competition in the
market has forced the organizations to offer lucrative compensation packages. Performance based incentives comes out
to be the only solution for the demand-supply disparity. Who works- receives the appreciation and who does not works-
lacks behind.

Incentives are more effective in the marketing segment as it results in more and more sales. The business development
executives strive for more incentives and in the effort produce more business and receive heavy perks.
The issues that have come up related to executive incentives are:

• People believe that the incentives offered to the executives are much more than what the stockholders receive.
• Some people also criticize the appraisals blaming the time duration given in achieving the set performance
standards.
• Some people also complaint of the un-fair distributions of incentives. They believe that team members actually
work and more appreciation is given to the team leader.
• Some people also complain that more incentives are given to place the organizations on top of the salary
surveys conducted by the respected research organizations.

Incentive Plans
Organizations can opt for an effective incentive plans from the various alternatives available. The organizations usually
opt for that incentive plans which suits its requirement the most. As incentives covers the financial matters, organizations
need to be very focused in choosing the best alternative that is in alignment to the business goals and objectives.

The various incentives plans available are:

Piece Rate
Piece rate incentive is given to the employees based on the number of units produced. This plan is practiced in the
sectors dealing with manufacturing of products such as engineering – automobile, telecommunication, FMCG, etc.

Commissions
Commission is a variable component of compensation package. It is given on the basis of business generated by the
employee. Commission is a pre fixed component say 5% of the total sales done by the employee. It is practiced in the
retail, FMCG and other sectors in the marketing and sales segment.
Bonuses
Bonuses are given to employees on a pre established goal or criteria. The organizations set policies regarding the
bonuses. Usually bonuses are provided during the festive season.

Merit Raises
Merit raises are given on the basis of predetermined policies. The employees are given raise on the basis of their
performance. The performance standards are set by the organizations much in advance.

Standard Hour Pay

Standard hour plan provides incentives to employees based on the time saved by them during the job course. Employees’
productivity and quality is evaluated with respect to the set standards.

Maturity Curves
Maturity curve incentive plan considers the experience and performance of an employee for giving out the incentives. It is
practiced in all the industries. Experience is always given a weight-age as experienced people can produce better quality
results.

Gain Sharing
Gain sharing incentive plans undertake those employees who give outstanding performances and provide for cost saving
measures. Organizations believe in sharing the profits with the employees who are responsible for producing those
results.

Profit Sharing
Profit sharing incentive plans are practiced in retail and FMCG sectors. Other sectors too implement the plan based on
organizational policies. It refers to giving out the share of profits the organization earned to all the employees. Indirectly
all the organizations follow the plan by giving out the dividends.
Strategic Incentive Plan
In today’s competitive business world of globalization organizations should formulate compensation strategies keeping in
mind their employees’ interest. With more and more players entering the market and high attrition rate, it is a challenge
for organizations to retain their talented human resource. The organizations should follow a systematic process to
formulate the incentive plans.

Incentive Strategy Formulation Process

1) Organizations should first understand the need of incentive plans. They should set clear objectives as of why incentive
plans are formulated, what are the objectives. These objectives should be in alignment with organizational goals and
objectives.
2) Various options for individual and group incentive plans should be explored.
3) Benefits and disadvantages of each plan should be considered and from the various options available one incentive
plan should be chosen.
4) Using the best incentive plan, compensation strategy should be formulated.

Organizations should provide rewards based on employees’ performance. Significant monetary and non-monetary
rewards should be given. Performance standards set should be acceptable by the management and the employees. The
methods of appraisal should be fair and known to all the employees. Organizations should see that all the employees
receive adequate compensation based on the internal equity with respect to the industry standards.

Organizations face some problems while setting up the incentive plans. Some employees do not trust the organizational
policies. They complain that the performance standards set are not fair. There are also confusions related to the formulas
used to calculate the payout incentives.
Compensation Packages in Indian Industry
With the technological developments taking place at a higher rate, the salary packages are
too increasing at a much higher rate. Pay packages in India have witnessed an increase of
more than 14% in 2006 over last year’s salary packages. The compensation package
comprises of monetary and non-monetary benefits that includes salary, special
allowances, house rent allowance, travel allowance, mobile allowance, employee stock
options, club memberships, accommodations, retirement benefits and other benefits.

Globalization is being considered as the cause for such salary hikes. The establishment of
multi national companies and privatization has led the Indian industry to witness higher
salary package. With the immense competition of attracting and retaining talented human
resource, compensation package is the only motivation factor available with the
organizations be it Indian origin organizations or foreign-owned multinationals.

With the high attrition rate organizations are increasing their salary packages to attract
and retain talented human resource. In the race, India has begged first position followed
by Lithuania and China.
Market Research- Salary Surveys
Organizations are conducting market research and purchasing the salary survey reports to
formulate their own compensation strategy most competitive in the existing environment.
They also make sure that it is also as per the industry standards. The salary surveys
reports the salary status and compensation provided by the organization in different
industries and as per the job hierarchy in the organization.

Compensation System
The compensation includes monetary and non-monetary benefits provided to employees
in several forms. Some organizations provide fixed pay with incentives and other benefits
and some organizations offer performance based pay that is variable in nature depending
upon the performance of the employee. In India organizations follow the equal pay
concept for jobs having equal worth to the organizations.

Indian Industry Analysis

Indian industries are aiming for high growth and are looking for talented human resource.
For the purpose they are offering most competitive compensation packages. Besides the
monetary and non-monetary benefits some organizations also offer development benefits
such as online degree programmes or certification courses. Insurance sector has
succeeded in increasing the compensation packages at highest rate followed by Banking
and IT sectors.

In Indian industry rate of salary hike also depends on the job position in the
organizational hierarchy. During year 2006 technical and professional skill oriented jobs
were offered more salary hikes than the senior management.
Information Technology Sector
Indian IT industry is witnessing a high growth rate. The sector is recruiting more and
more technical and professional people. The growth rate of recruitment in the sector has
been observed as 14.5%. With the immense recruitments and high attrition rate,
organizations focus on higher competitive packages. The average increase in the salary
during 2006 was reported as 16%.

The compensation package for an employee is based on various factors such as his/her
educational level, relevant experience in the industry, job’s position in the hierarchy,
skills and attributes and job related technicality. The average salary offered as per the
experience level of the candidate is as follows:
Dataquest-IDC has recently reported following as the top 20 highest salary payers in
Indian IT sector.

o HCL Infosystems Limited

o Hexaware Technologies
o RMSI Private Limited
o Cadence Design Systems
o Tata Consultancy Services
o Aztecsoft Limited
o Nucleus Software
o Induslogic
o Kanbay International Inc
o Cybage Software Private Limited
o Accel Frontline Technologies
o Geomatric Software Solutions Co. Ltd.
o Sierra
o Flextronics
o Computer Sciences Corporation
o Interra Systems
o Sasken Communication Technologies Limited
o NIIT Technologies
o Wipro Limited
o Infosys Technologies Limited

Entry Level Compensation Packages

Indian IT industry provides a lucrative compensation package provided for entry level
jobs. Top players like TCS, Wipro, Infosys, Sasken, IBM, Accenture and other
multinationals and locally owned organizations are providing most competitive packages
to attract and retain talented human resource.

Indian IT sector offers various job openings to fresh engineers or diploma holders. The
candidate aspiring to join an IT organization should posses certain technical and non-
technical skills and attributes. Attainment of qualified degree or diploma certificate from
a reputed institute/university would be an added advantage.

The desired skills are:

• Effective Communication Skills

• Sound Technical Knowledge
• Strong Commitment Level
• Strong Analytical Skills
• Ability to meet deadlines

Besides the pay packages, employees are also given certain monetary and non-monetary
benefits such as allowances, accommodations, respective positions, perks, incentives,
insurances, etc. These benefits differ from organization to organization.

Management Level Compensation Packages

IT industry offers lucrative growth prospective to its employees. Top players of the
industry such as TCS, Wipro, Sasken, IBM, Infosys, Accenture, Oracle, HCL, Satyam,
Sify and other organizations are providing heavy perks and handsome pay packages to
retain their talented workforce. Apart from basic salary and special allowances,
employees are given some other monetary and non-monetary benefits like club
memberships, annual bonus, and other special allowances.

Effective communication skills, good analytical skills and sound technical knowledge are
must to have a respectable position in IT sector.

People working in IT sector should be willing to work at stretch, they should be able to
work in pressure and meet deadlines. Also, the level of experience determines one’s level
of compensation package and position in the industry.

Insurance Sector

Privatization has brought in lot of surprises for insurance sector. In India, insurance
sector is at the booming stage as only 40% of the population is insured. Private
organizations are striving hard and hard to develop the sector. Organizations are coming
up with newer insurance plans to attract the market such as accidental insurance, medical
insurance, medi-claims, family-health insurance, dental insurance, diabetes insurance,
auto insurance, etc. Government is also supporting the insurance sector to increase the
Gross Domestic Product ratio from the sector which is now about 1.4% only.

From the government jobs to private organizations openings, work environment, job
profiles, pay packages and career growth options have been changed. From basic salary
with small incentives, compensation systems have been grown to increased salaries,
incentives, perks, allowances, accommodations, etc. The average salary increase for the
year 2006 was 17.1%.

Following are the top players of the insurance sector offering most competitive packages
to their employees:

• Life Insurance Corporation

• New York Life
• Prudential
• Met Life
• Birla Insurance
• Kotak Mahindra
• ICICI
• HDFC

Entry Level Compensation Packages

Insurance sector is at the growth stage recruiting more and more people in the industry.
Organizations are providing most competitive packages to attract and retain the talent.
Most of the jobs in the insurance sector are part time, providing the opportunity for the
employees to earn extra apart from their regular income. The compensation is also
performance based, depending upon the insurance amount and premiums.

Candidate who wishes to join the insurance sector has to complete a graduation degree. A
PG diploma in insurance can get him/her position of agent or insurance advisor in some
reputed organization.

Since most of the jobs offered in the sector are in the marketing segment, candidates with
marketing skills would have better career prospects. Following are the key skill
requirements for the job profile in the sector:

 Excellent communication skills

 Excellent marketing skills

 Good interpersonal skills

 Good public relations

 Target-oriented approach

 Analytical skills
Top players in the sector offers the following compensation packages at entry level:

Management Level Compensation Packages

Indian insurance sector is growing at a fast pace and offering lucrative career options.
Both private and public organizations offer part time and full time employment in the
sector. Life Insurance Corporation of India, Birla Insurance, Max New York Insurance,
ICICI Prudential, and Met Life Insurance are some of the leading organizations in the
sector. Educational institutes are also coming up with certificate courses in insurance
management. The course offers managerial positions and excellent growth perspective in
the sector.

Excellent marketing skills and communications skills with appropriate experience level
would help any individual to score well in the industry.

Compensation package in the industry includes heavy perks and incentives part from
basic salary structure and other special allowances. Most of the jobs in the sector are
categorized in the retail and marketing segment.
IT Enabled Services

With IT industry at the boom, Indian IT-enabled services are also enjoying the returns.
Recruitments are taking place at a high rate. It has also given rise to the outsourcing
industry. IT-enabled services cover a rage of service sectors like BPO, KPO, Hardware
and Software. The compensation packages in the sector vary from job-job and company
to company. Experience level also forms an integral part of the compensation package.

Compensation Packages in BPO & KPO

BPO and KPO units have entered the Indian markets with lucrative compensation
packages and high incentives. Most of the organizations in the segment are foreign-
owned. Few of the Indian organizations have also come with the BPO and KPO units.

The organizations are attracting young talent by offering lucrative compensation

packages.
Compensation Packages in Software & Hardware Services
Software & Hardware services have created lots of jobs in the sector. Fresh and
experienced engineers are offered jobs with high packages. Top players like Microsoft,
Oracle, IBM, HCL, Infosys, Satyam, Sify, Wipro, LG, and Samsung are offering
lucrative packages to attract and retain talented workforce
Entry Level Compensation Packages

BPO & KPO have come up with lots and lots of jobs for fresh graduates with handsome
salary packages and incentives. They are attracting young talent. Outsourcing industry
has come up with new job prospects for graduates. But it demands hard work and skilled
labour. The desired skills for BPO & KPO services are:

 Effective Communication Skills

 Strong Commitment Level

 Strong Analytical Skills

 Ability to meet deadlines

Despite the fact that KPO & BPO do not offer job securities, the recruitment rate in the
segment is very high. Most of the job profiles are target based. High recruitment rate is
due to high average salary being offered to fresh graduates also.
Management Level Compensation Packages

Employees need to work hard and achieve their targets in order to be in the lime light.
High attrition rate has caused organizations offer high compensation package.
Compensation plays an important part here. When the employees are provided with good
packages they produce well and maintain their stability but if not they cause high attrition
rate.

KPO, BPO, software and hardware services offers handsome salary packages and high
incentives to managerial level positions. The project managers and other top management
employees enjoy monetary and non-monetary benefits from the organization. The
organizations offer lucrative benefits to retain the talent in the competitive environment.

With The software and hardware industry is in need of talented programmers, testers,
developers and analysts to improve their productivity. Educational institutes are updating
their syllabi every year to deliver updated and skilled human resource. The organizations
are also providing for educational programmes for their employees or their development
to reduce the recruitment cost.
Telecommunication Sector

Indian telecommunication sector is witnessing a growth rate of more than 25%. With the
upcoming of new upgraded technologies such as 3G, the sector will be experiencing a
growth rate of more than 100%. Public players and private players are competing with
each other and are developing themselves to produce more quality and deliver advanced
technologies. Top players in the segment such as Bharti Airtel, Reliance
Communications, Tata Teleservices, Idea Cellular, Hutchison, Essar, Nokia, Siemens,
LG, Motorola, etc are investing in new projects to accommodate the 3G technology.

With the business expansion and globalization of Indian organizations more and more
recruitments are taking place in the sector. The sector has also provided jobs in
marketing, installation and construction segments. Immense competition has led the
organizations hire more and more skilled labour, be it for upgrading their technologies or
marketing their products. Organizations are offering most competitive packages to attract
and retain talented human resource.
Entry Level Compensation Packages

The sector is offering openings in banking, insurance, capital market, venture capital,
mutual funds, bonds, commodities markets, etc. Compensation provided to fresh
management graduates is also very lucrative. The sector is open for CA, CS, accountants,
MBA in finance and commerce graduates.

 Effective Communication Skills

 Sound Technical Knowledge

 Strong Commitment Level

 Strong Analytical Skills

Apart from pay packages marketing people also get high incentives and perks. The
industry provides for special allowances such as annual bonus, house rent allowances,
mobile allowances, transportations, travel leaves, paid vacations, etc.
Management Level Compensation Packages

Telecommunication provides for excellent growth opportunities. In the global

competitive environment experienced people have an upper hand in selecting an
organization. Organizations need to offer most competitive packages and heavy perks to
attract and retain the talented work force.

Effective communication skills, good analytical skills and sound technical knowledge are
must to have a respectable position in telecommunication sector. Organizations such as
Idea Cellular, Tata Teleservices, Reliance Communications, Bharti Airtel, Nokia,
Siemens, ericcson, Motorola, etc are advancing their technologies and providing most
competitive compensation packages.

People working in telecommunication sector are asked to work at stretch and in pressure.
Also, the level of experience determines one’s level of compensation package and
position in the industry.
Banking & Finance Sector

Indian banking and finance sector is currently experiencing high growth rate. With
increased FDI and high inflation rates, finance sector is enjoying high deposits. Financial
institutes and commercial banks are expanding their business and going for large scale
recruitments. The banks are collaborating with insurance units to provide insurance
coverage to their clients. Few of the banks are also dealing in gold and silver.

Nationalized banks are preferred more as they provide for job security. Compensation
packages in banks have always been lucrative. Incentives, special allowances, travel
leaves, concessions, paid vacations, paid leaves, retirement benefits are also offered along
with basic salary and other allowances such as house rent allowance, transportation
vehicle etc. Compensation package in finance and banking sector depends on the level of
knowledge and experience an individual have.

Top players such as nationalized banks- Bank of India, SBI, Indian Overseas Bank, Bank
of Baroda, Punjab National Bank, HDFC, ICICI and other private banks, financial
institutes such as Bajaj Capital, Kotak Mahindra, etc, are offering high salary packages
with lucrative incentives to attract and retain their talented work force.
ENTRY LEVEL COMPENSATION PACKAGES

Indian finance & banking sector offers jobs in various segments. The managerial level
jobs are held by management professionals, commerce graduates and finance
professionals. However at the entrylevel there are more jobs for graduates in marketing
segment. The positions are for customer care executives, marketing executives in credit
card department, loan department, verification department, recovery department. In other
departments like audit, credit, advances, foreign exchange, etc individuals are
professionals such as CA, CS, MBA-finance, commerce graduates, B.com, M.Com etc.
Software packages such as tally certification guarantees jobs in the finance sector.

Getting into nationalized banks is quite difficult, but if the candidate has desired skills
and willingness, he/she has to pass an entrance exam followed by personal interview and
medical inspection. These exams are conducted by the respected banks only. Packages
offered to individuals are based on their knowledge level and training experience. The
profile of the candidate also matters. However the candidates looking for a career in
finance should possess the necessary skills. They are:

 Effective Communication Skills

 Commerce Background

 Excellent Marketing Skills

 Strong Analytical Skills

 Ability to meet deadlines

Apart from pay packages finance professionals also get high incentives and perks. The
industry provides for special allowances such as annual bonus, house rent allowances,
mobile allowances, transportations, travel leaves, paid vacations, etc.

Management Level Compensation

Finance sector is a promising sector where compensation is considered. The sector has
witnessed 17% average increase in the salary packages in the year 2006. The
compensation packages offered to managerial level employees are very much lucrative.
Besides the basic salary employees are also provided with heavy perks and incentives
with special allowances. They are offered club memberships, company’s vehicle, travel
leaves, paid vacations, other allowances and non-monetary benefits

Organizations also conduct training and development programs for their employees’
professional growth. Organizations provide for certification courses and online degree
courses for the employees. At higher level employees are given employee stock options.
Individuals are given equal preferences on the basis of their performance.
Nationalized banks offer job security and private financial institutes provide high
lucrative packages. With the globalization, liberalization, business expansion, more
number of competitors, jobs in the financial sector are also demanding too much hard
work. Earlier bank jobs were considered very comfortable ones but now the scenario has
been changed. Indian banking sector is heading for 24*7. Some of the nationalized and
private banks have started working 8 to 8.
Hospitality Sector
In next 10 years Indian hospitality sector is expected to grow at the rate of 8%. The
emergence of Government voluntary schemes such as Incredible India has caused more
and more tourists pouring in Indian holiday destinations. This has caused more and more
development of the hospitality sector. The sector can be categorized into two sub
industries- hotel industry and travel & tourism industry.

The sector offers jobs in various segments customer care executives, marketing,
servicing, house keeping, kitchen management, faculties, cabin crew, finance, help desk,
management, etc. Hospitality sector offers lucrative compensation packages.

The compensation package in the sector includes heavy incentives, meals,

accommodation, and travel allowances along with basic salary. Usually basic salary is
less but the incentives and perks known as tips provides for handsome earnings.

The compensation packages in the industry are based on the brand and position an
individual is working for. There’s a huge gap between the compensation provides by a 5
star hotel and an ordinary 1 star hotel. The package and position is also depicted on the
basis of the educational background of the candidate. A person with hotel management
degree will earn more than an individual with no certifications in hotel management.
Entry Level Compensation Packages
Hospitality Sector offers lucrative packages to fresh graduates. An individual needs to
complete a full time or part time degree or certification course to enter the promising
industry. The compensation packages offered vary from job to job, segment to segment
and brand to brand. For example, a pilot in some private airlines gets a very high package
than a driver in a roadways organization. But the industry offers heavy returns to the
owners of the business enterprises.

Hotel Industry
An individual who wish to join the hotel industry needs to have a certification course or
diploma/degree in hotel management. Of course there are many low grade restaurants and
other family restaurants and hotels where these certifications are not required but there
the compensation packages are very less. The brand names such as ITC hotels, Hyatt
Regency, Oberoi Hotel and Leela Hotels offer high lucrative packages with heavy perks
and incentives. But these organizations look for diploma/degree holders. An individual
must possess the following skills to fulfill his/her salary expectations:

 Effective Communication Skills

 Specialized Skills

 Strong Commitment Level

 Willingness to Work at Stretch

 Team-oriented

 Willingness to Work in Shifts

Tourism Industry
Tourism industry also offers very promising compensation packages. There are various
job openings in the sector. One can start his/her career in any of the sub segments. There
are growth opportunities in railways, airlines, roadways and crews. There are both public
and private organizations dominating the sectors. Crews and Airlines offer most lucrative
packages to fresh graduates. They look for degree/diploma holders. Top players such as
Air India, Indian Airlines, Deccan Airways, Indian Railways, DTC, BEST, Shipping
Corporation of India Ltd are offering most competitive packages to their employees. One
needs to have some skills and attributes to start his/her career in the industry. The desired
skills are:

 Effective Communication Skills

 Specialized Skills

 Strong Commitment Level

 Willingness to Work at Stretch

 Team-oriented

 Willingness to Travel

 Willingness to Work in Shifts

Management Level Compensation Packages

Hospitality industry offers high packages. Although the basic salary in the sector is less
as compared to other sectors but the incentives and perks offered are very high that
makes the total amount a huge one. With relevant experience, diploma
certification/degree provides for an added advantage for the individuals working in the
hospitality industry.

Top management enjoys very high compensation packages in the hotel industry. The
packages include basic salary, incentives and bonus. Due to immense competition
packages are increasing at a high rate to attract and retain the talented workforce.

Big names such as Hyatt Regency, Leela Hotels, ITC Hotels, Oberoi Hotels are offering
lucrative packages. In the tourism industry airlines such as Air India, Kingfisher, Jet
Airways and Indian Airlines are offering higher packages to attract and retain best human
resource.
Hospitality sector provides for varied compensation packages. For example, hotels
located in center city and resort areas provide higher salary to their managers as
compared to hotels located along highways or in the suburbs. In a study it was found that
managers of a hotel located in center city earns an average of 125% more than the
manager working at a highway hotel. Industry is expected to grow at the rate of 8% that
predicts that compensation packages for the employees will also increase with the same
pace.

Healthcare & Medical Sector

Salary package is the core aspect for attracting and retaining employees. The immense
growth in the sector has caused the compensation packages in the industry increase at a
rapid pace. The compensation packages in the industry are reaching the same roof as of
IT sector in the country. The industry is booming and this has led the medical institutes to
offer lucrative packages to attract and retain skilled medical practitioners.

In recent study it was revealed that medical tourism is increasing in India. It is expected
that the Indian healthcare industry will grow by more than 40% in the next 5 years. This
has caused more and more companies are entering the sector which is demanding more
and more professionals.
Hence, the organizations offer most competitive packages to acquire the best talent
around. It has been found that that there are many MNCs in the Indian healthcare industry
who want to put the management on a global scale.

Compensation Structure
The compensation package includes the following components. Apart from the regular
components, medical practitioners are also provided with the special benefits mentioned
below.
The traditional aspect of equal pay in equal regions has been taken over by the new
phenomena of competitive pay across the industries. Globalization and business
expansions have caused the organizations to attract and retain the talented workforce.
They also keep in the mind the internal parity i.e. the pay structures are comparable with
respect to the job positions in the organizational hierarchy.

Entry Level Compensation Packages

Indian healthcare industry can be categorized in public and private sectors. The public
enterprises offer job security and the private institutes provides for lucrative packages.
The industry is creating opportunities in new areas to facilitate more health care services
such as health and fitness, wellness, rehabilitation, home healthcare, nutrition.

It is a challenge to the healthcare industry to restructure its compensation packages to

attract the young talent. Young talent opts for performance based pay and incentives
whereas old generation is still demanding the heavy benefits. Organizations need to
formulate a balanced strategy to improve the organizational productivity and provide the
most competitive pay-packages.

Given below are the various openings the industry has for fresh medical professionals:
An individual should have a qualified degree from a reputed university to enter the
healthcare sector. He/she should possess the desired skills to gain the most competitive
packages:

• Effective Communication Skills

• Sound Technical Knowledge
• Strong Commitment Level
• Strong Analytical Skills
• Willingness to Work at Stretch

Besides the pay packages, employees are also given certain monetary and non-monetary
benefits such as allowances, accommodations, respective positions, perks, incentives,
insurances, etc. These benefits differ from organization to organization.

Management Level Compensation Packages

Organizations understand that only compensation package will not help them retain their
talented workforce but they need to provide excellent working atmosphere, growth
opportunity, and space for experimentation. The individual satisfaction level must also be
maintained. They should take measures to motivate employees. Like other industries in
healthcare industry too, the non-technical staff such as marketing team are receiving
lucrative packages.

Top Management Compensation Structure

The organizations are offering lucrative compensation packages to their senior
management. They try to balance the packages provided to the technical professionals
and non-technical professionals by offering annual bonuses and variable pay plans.

Companies are becoming competitive when it comes to luring top executives with a mix
of high basic salary, incentives, Employee Stock Ownership Plan and deferred pay. They
are also looking at performance-based salaries, with variable pay as a percentage of
salaries on the rise.
Significant increase has been in salary packages in the industry. The average increase in
salary in the sector has been reported as 12% in the year 2006. Organizations have
offered car and accommodation benefits to their senior and middle management
employees. Given below is the average increase in the salary in the industry at various
segments:

The compensation in the industry also depends on the specialized area. Compensation is
decided with respect to the individual’s contribution to the organization.
Issues related to Compensation in Hospitality Industry:

• Types of staff/workmen employed, their skill sets and their expectations as

against salaries/wages offered in neighbouring units.

• Size of the organization, its organization structure and volume of transactions.

• The customer base, customer’s expectations and the seasonal influx due to
factors like vacations, monsoon, festivals, holidays, changing habits of tourists
etc.

• Employee turnover in Service Industry.

• Availability of the required manpower .

• Government Policies in relation to such industries.

• Local/State tax structure and other regulatory rules affecting the industry.

• The up-gradation of the knowledge base of employees, training and development

activities as well as availability of the Vocational Training Institute imparting
required knowledge to new/budding or aspiring persons wanting to get employed
in such industries.

• Difficulties in marketing the service i.e, Service marketing: It is difficult to

convince the customer about need for such service.

The findings of wage and salary administration in hospitality industry.

• The administration of wages and salary is the most important task in personnel-
administration. Mere determination of the wage structure is not enough; it must be
properly implemented and administered.
• Wage survey, wage plans and job evaluation are the three important methods used
for this purpose. These methods have to be applied with prudence. Wage and
salary are also subject to a variety of legislation and in this context, compliance
with existing legislative measures is very important.

• The aim of a wage and salary policy is to recognize the value of each job, provide
stability in earning, allow individuals to reach full earning potential and to ensure
that all staff share in the organization’s prosperity.
Wage levels in a organization are determined by factors like the organization’s ability to
pay, supply and demand of labour, job requirement, cost of living index, prevailing wage
rate trade union bargaining power, psychological and social factors. Suitable levels have
to be set after consideration of all these factors. Therefore an attempt was made to assess
the main consideration for determining the wage and salary structure in the selected hotel
units.

Competition demands adherence to the same relative wage level, and trade union
encourage this practice so that their members can have equal pay for equal work and
geographical difference can be eliminated. But during the research it was found that in
certain cities, prevailing wage rates are very low whereas organizational ability to pay is
more. This has led to frustration in employees and requirements, and cost of living index
are the next important factors in determining wage and salary structure. Whereas trade
union bargaining power and psychological and social factors are only involved in five-
star and are 16 percent only.

Duration of pay revision.

By keeping in view the natural expectation of employees to gain higher wage and salaries
as their experience curve yearly takes an upward trend and to avoid frustration in
employees on not getting a timely pay hike, several organization have decided the
duration of wage an salary revision. It was also found that 20 percent and 30 percent of
the two-star and unapproved hotels respectively do ot have fixed duration of increments.

Labour turn-out.

It is seen that most financially sound organizations take into consideration the prevailing
wage rate factor while fixing the wage and salary structure of their employees. This may
engineer a sense of frustration in employees leading to heavy labour turnout. In this
regard, an attempt was made to find out the percent of labour turnout due to non-
satisfaction with wage and salary structure.

Labour turn-out due to non-satisfaction of wage and salary structure is 10-15 percent in
50 percent of five star hotels. In more than 50 percent of the two, three four star and
heritage this percentage is between 0-5 percent and in unapproved hotels the percentage
of labour turnout is very low due to loyalty towards the owner, social causes and
illiteracy of the employees.

Conclusion:

Hotels must realize that satisfied human resource is a valuable assets for the organization.
An organization pay must be competitive and equitable. This will not only ensure the
cooperation of their managerial and non-managerial personnel but also reduce the
percentage of labour turnout beside maintaining industrial peace. If an organization fails
to do so, it attracts criticism from social reformers and trade unions. Therefore the
business organization must develop a balanced package of wage and salary
administration in a most appropriate and effective manner.

Aspects of manufacturing or engineering industries compensation survey.

Following aspects were observed while determining pay ranges :

It is important to keep in mind that there is an adequate differential between supervisors

and subordinates-whether they are paid under the same pay plan or under different ones.
When the pay-range of one group is changed, equal attention must be given to the pay
level of the other.

Because of the continuous rise is wage and salary levels, a rise resulting from a variety of
environmental pressures, considerable attention must be given to handling upward
changes in wages structure. Some firms give general percentage or “across the board”
pay increase based on merit or length of service. The sound thing is to make general
adjustments in wage structure according to the price index number.

The existing pay structure should be regularly reviewed and revised. This will make job
evaluation programme more acceptable to employees. Regional differences in wages
should invariably be maintained. Forces that favour regional differences between areas,
added sources of income, or characteristics ( rural versus urban or industrial), seasonal
occupations as in agriculture versus stable occupations.

However , it was observed that, several forces work to level these differences. The forces
that favour uniformity in wages are: high mobility between regions and /or employees,
access to timely, reliable information, wide spread unionization efforts (often along
industry/occupational lines.)

Factors that were usually taken into consideration for wage and salary administration are:

The organization’s ability to pay

Supply and demand for labour
The prevailing market rate
The cost of living
Living wage
Productivity
Trade Union’s bargaining power
Job requirements
Managerial attitudes and
Psychological and sociological factors.
The organization’s ability to pay : Wage increases were given by those organizations,
which could afford them. Companies that have good sales and therefore, high profits
tended to pay higher wages than those which running at a loss or earning low profits
because of the high cost of production or low sales. All employers, irrespective of their
profits or losses, had opted to pay no less than their competitors and needed pay no more
if they wished to attract and keep workers. In the long run, the ability to pay no more if
they wished to attract and keep workers. In the long run, the ability to pay is very
important. Marginal firms and non-profit organizations (like hospitals and educational
institutions) paid relatively low wages because of low or no profits.

Supply and Demand of labour: The labour market conditions or supply and demand
forces operated at the national, regional and local levels, and determine organizational
wage structure and level. If the demand for certain skills and the supply was low, the
results was a rise in the price to be paid for these skills. The other alternative was to pay
higher wages if the labour supply was scare, and lower wages when it was excessive.

Prevailing Market rate: This is also known as the ‘comparable wage’ or ‘going wage rate’
and was most widely used criterion. An organization’s compensation policies generally
tended to conform to the wage –rates payable by the industry and the community. It was
observed: ‘ Some companies paid on the high side of the market in order to obtain
goodwill or to insure and adequate supply of labour, while other organizations paid lower
wages because economically they had to, or because by lowering hiring requirements
they could keep jobs adequately manned.”

The cost of living: the cost of living pay criterion is usually regarded as an automatic
minimum equity pay criterion. This criterion called for pay adjustments based on
increases of decreases in an acceptable cost of living index. In recognition of the
influence of the cost of living, “escalator clauses” were written into labour contracts.

This criterion means that wages paid should be adequate to enable an employee to
maintain himself and his family at a reasonable level of existence. However, employers
did not generally favour using the concept of a living wage as a guide to wage
determination because they preferred to base the wages of an employee on his
contribution rather on his need.

Productivity: It is another criterion, and was measured in terms of output per man-hour. It
was not due to labour efforts alone. Technological improvements, better organization and
management, the development of better methods of production by labour and
management, grater ingenuity and skill by labour were all responsible for the increase of
productivity. Actually, productivity measured the contribution of all the resource factors
men, machine, method, materials and management.

Trade Union’s bargaining power: Trade unions do affect rate of wages. Generally, the
stronger and more powerful the trade union, the higher the wages. A trade union’s
bargaining power was often measured in terms of its membership, its financial strength
and the nature of its leadership.
Job requirements: Generally, the more difficult a job, the higher are the wages. Measures
of job difficulty were frequently used when the relative value of one job to another in an
organization was to be ascertained. Jobs were graded according to the relative skill,
effort, responsibility and job conditions required.

Managerial Attitudes: ‘ Top management’s desire to maintain or enhance the company’s

prestige had been major factor in the wage policy of a number of firms. Desires to
improve or maintain morale, to attract high-caliber employees, to reduce turnover, and to
provide a high living standard for employees as possible also appeared to be factors in
management’s wage policy decisions.

Psychological and social factors: theses determined in a significant measure how hard a
person will work for the compensation received or what pressures he would exist to get
his compensation increased. Psychologically, persons perceived the level of wages as a
measure of success in life, people might feel secure, has an inferiority complex, seemed
inadequate or feel the reverse of all these. Sociologically and ethically, people feel that
“equal work should carry equal wages”’ that ‘wages should be commensurate with their
efforts”’ that “ they are not exploited”’ and “that no distinction is made on the basis of
caste, color, sex or religion.” To satisfy the conditions of equity, fairness and justice, a
management should take these factors into consideration.

Conclusion:
Generally engineering industries had bad patch during last 7 or 8 years. And as such the
wage restructure programs, worker’s education programs and other welfare activities are
on the back-burner. The matters of discussions had been the restructure of the
organization or downsizing by resorting to schemes like voluntary retirements etc.
Except few industrial sectors like pharmaceuticals, fertilizers or agro-based industries,
food industries rest of engineering or manufacturing industries have resorted to go steady
technique as far as compensation policies are concerned.

The Observations On Compensation Survey Of It/Telecom Industries

this wasn’t a good year for IT pay packets. But all told, it wasn’t bad year either.
Increments that big annual hoopla of the industry-lost some of their sheen despite which
IT jobs remain among the best paying in the country.

Consider some numbers-by and large, entry-level salaries for people with less than two
years’ experience range from 2 to 3 lakh., with some development centers of international
product companies even offering Rs 5 lakh per year.
Nearly half the workforce with 2-5 years of experience gets between Rs4 and Rs. 6 lakh
annually. Infact, if you ignore the fringe numbers, most IT employees with 2-5 years
experience fall in the Rs 2-6 lakh income bracket. Between 5-qo yrs the pay packet
largely ranges from 6 to 9 lakh. After that salary figures stop making sense, varying all
the way from 10 to 90 lakh per annum for those with over 10 years of experience.

The bad news? The increment chart is suddenly looking a lot flatter and is likely to
remain that way through this year. Salary hikes had already been affected drastically
during the recent salary survey conducted by a popular magazine of April last year when
they went down from an average of 40 % or so to 15 % in most companies.

This year , that fall got broad-based. Over 50 % of IT employees got increments of 15%
or less, compared to 39% last year. This percentage is among those who even got
increments in the first place.